Closing Bell - Closing Bell 7/19/24

Episode Date: July 19, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Mike Santoli in for Scott Wapner. This make or break hour begins with an unsettled market chopping lower to finish out a week of erratic rotation. Let's take a look at the scorecard with 60 minutes to go in regulation. The S&P 500 on pace for a weekly loss of more than 1%, almost 2%. It would be its worth in about three months, though it does remain just around 3% off its recent record highs. The equal weighted version of the S&P is around flat for the week. Now, big outperformers from the first half continue to surrender their winning semiconductors off nearly 3% today, down 8% or so this week and more than 10% from their record high, with the Nasdaq 100 also in retreat from its record high. That pullback now 5% plus. The small cap Russell 2000 does continue to outperform, though even it has given back about a third of that huge five-day surge into Wednesday on those soft landing and Fed rate cut hopes. Now, all of this churn has the VIX at a three-month high as traders seek protection with all these headlines flying?

You see it up 16.5 right now. Which brings us to our talk of the tape. Is this still a healthy broadening of the bull market or the stirrings of the year's first proper correction? We'll discuss with our experts, including RBC's Laurie Calvicina, in just a moment. But first, we are keeping a close eye on shares of CrowdStrike and Microsoft as the world continues digging out from a global computer outage. The culprit, an update CrowdStrike sent for its Microsoft operating systems clients. Here's CrowdStrike CEO George Kurtz addressing the outage earlier on Squawk on the street. This was not a code update. This was actually

an update of content. And what that means is there's a single file that drives some additional logic on how we look for bad actors. And this logic was pushed out and caused an issue only in the Microsoft environment. We identified this very quickly and rolled back this particular content file. Obviously, many organizations are impacted and many of them are beginning to recover. Many systems can be rebooted and we've fixed the issue. So the systems are coming up and running. Well, ripples are still being felt across sectors and industries. With me now is CIC Welts Malcolm Etheridge. He's also a CNBC contributor, owner of Microsoft and CrowdStrike and CNBC technology correspondent Steve Kovach. So, Steve, I guess

more than 12 hours in here. What's the state of, I guess, the recovery? And what do we make of that explanation of what exactly happened and whether it means it's potentially an ongoing vulnerability or a one-off? Yeah, it does sound like a one-off. So I think we can say that pretty confidently here that this was just a bungled rollout and also just really speaks to CrowdStrike, the processes they go through and going to have to look at because the folks that we've been talking to all day, Mike, have been saying there are safeguards against stuff like this to make sure a buggy rollout doesn't hit so many systems at once. So we're going to really be interested to see what kind of investigations sort of shake out there.

But as for the status of things right now, Mike, there are still plenty of systems offline. And as Kurt said in our interview, that's just because while some systems are going to be able to reboot automatically, you restart your computer, everything's fine, working like normal, blue screen of death goes away. But other folks are having issues where an IT professional from their company has to literally go to their computer, remove the bad files, and then restart the computer. And now imagine that doing it by thousands and thousands of computers affected all across the world. And you kind of see what kind of problem this can be. So it could be not just days or not just hours, rather, but many days before this is fully resolved, Mike. Yeah. All right. So certainly a nuisance, but maybe not something that's going to escalate from here.

And Malcolm, you know, we've been hearing pretty much all day that this was essentially just a misstep in this one update and therefore not something about CrowdStrike's franchise, yet the stock is down 13%. So how are you thinking about it? Yeah, so I definitely think that this is something that we'll refer to in the future as an isolated event. But I do think, if nothing else, it's a knock against the platformication narrative that had really been firmly in CrowdStrike's favor up to now. The bull run that they've been on pretty much the last three months has really been because they were the leader toward building in the cloud from a cybersecurity standpoint. And I think that they were seen as the go-to player when you want a platform that you can have a single source of truth. And I think this has sort of hurt that narrative a little bit,

as larger enterprises will at least be a little bit skittish about having all of their eggs in one cybersecurity basket. Let's bring in Rosenblatt's Catherine Trebnik, who covers CrowdStrike. And Catherine, I'm curious of your thoughts on that as to whether this could have any impact on the CrowdStrike franchise or just the general growth story. Well, first of all, I thought that they were very transparent and fast to articulate and put out the fix. That helped a lot. I called several customers today, resellers. All of them agreed that they were happy to get the fix as fast as they did.

So I was positive on that. I think there's probably two weeks left in the quarter. And, you know, on the margin, there might be some deals that might be held up because of that. But for the most part, every customer I had interviewed and VAR, at least six of them in the last three weeks before this morning, everyone was positive. All of them liked their customer service. That's one of the things he gets the most positive response on is how positive and fast they are to articulate and get in and help them resolve a problem. So I think this is more a short term issue for the stock. And I still believe in the long term value.

I mean, I guess, you know, it sounds silly to just sort of defer to the market reaction, but you do seem to see some evident concern, at least in terms of the growth trajectory, based on how the stock's behaving today. Folks like you out there saying this is probably not a long-term issue. And I just wonder if it means that either customers are going to diversify away a little bit, Catherine, or if it's just, you know, kind of a reflex on a bad headline. I think it's a reflex on a bad headline. It's going to be very difficult to take your core fabric, which Proudstrike has become in many of these large

organizations and remove it. So, you know, there might be some possibility they might bring in a one off, but managing three different endpoint vendors is going to be more chaos and is having one platform play. So I think this is a one off. Malcolm, you know, you also own Microsoft. Obviously, the market impact for Microsoft is not significant. They're clearly just sort of the, you know, the customer here in a sense. But I do wonder, you know, in this pullback, Microsoft hasn't been immune to a little bit of downside. How are you thinking about the overall ecosystem and even maybe, you know, where the focus of the company is right now. Yeah, as much as I love to step in and buy when I think companies suffer

from an overblown market reaction, I don't necessarily think this is the moment where I would be stepping in to buy these shares, if that's the question you're asking. I think the adage about a falling knife might actually be applicable here simply because we don't actually know just how much financial exposure CrowdStrike has just yet. So I think George Kurtz will have a lot more opportunities to come out and let us know exactly what the quarter is shaping up to look like, the quarter that just happened looks like, but also what he sees this quarter we're now in shaping up like. And unfortunately, they don't actually report earnings until, you know, more than a month from like. And unfortunately, they don't actually report earnings until more than a month from now. And so we won't have an opportunity to hear a formal

statement from George Kurtz. So I think he'll do the company some justice coming out and let us know if he does see some serious financial exposure for the company. And if that is the case, I think they could actually see another leg down from here. So I don't know that this is necessarily the moment to jump in, rush and buy that 12 to 13 percent dip that we're looking at toward the close today. Yeah. And Catherine, I guess the other thing is, even though it's down significantly today, it's only back to where it traded several months ago, let's say, and it remains a premium valuation on this stock because of the growth rate, because of how central it is to all of this. So is this your sort of optimum entry here? Where do you think the stock ultimately can get to?

So I disagree with our former person and I would be buying down here. I just don't. This is a, you know, very well-renowned company. They are the best at cybersecurity. There are very few companies that are growing over 25% year over year. They beat on the earnings every, you know, the last eight quarters averaged over 14% on revenue. It's 2%. So I'd be buyers here. I'm a long-term value holder if I were on the buy side. Steve, gotcha. Steve, you know, there is a line of thinking that says, you know, the fact that it causes this much disrupt and really just underscores how pervasive CrowdStrike is and maybe how entrenched it is out there as kind of an industry standard. Yeah. And it's not just CrowdStrike. I mean, this could be any of the

cybersecurity companies. I mean, just look back to what we saw with that AT&T hack earlier this week. That was all snowflake. And so when you have one vendor providing this and something happens with that vendor, then you're at risk. In this case, it wasn't a hack. Thank goodness. That is what we should all be saying. And so far, CrowdStrike seems to be doing their job there. But when it comes to pushing out an update, they clearly failed here. And it just shows that if we do get to a point where their systems are compromised, if not, this is relatively smooth. It's going to be quite chaotic when they can't push out a fix. If they're held at some kind of Bitcoin ransomware or something like that, that's when things get really scary. And this is just a lesson learned about how we need to be

taking these things incredibly seriously. And folks who are buying how we need to be taking these things incredibly seriously. And folks who are buying these products need to be doing all their due diligence about the company. To Malcolm's point, and I'm going to split the difference here between Malcolm and Catherine, though, it's on the one hand, yes, CrowdStrike has a sterling reputation for their product and so forth. Today is a big blunder. At the same time, we still don't know the details of what exactly happened and how this was able to happen. And so I'm still waiting to see, you know, the results of a more formal investigation before we really make a call there. Yeah, I guess so are we all. Steve, Malcolm, Catherine, thanks so much. Appreciate your help putting it all into perspective here.

While the major averages are approaching the end of a difficult week. Joining me now at Post 9 is RBC Capital Markets' Lori Calvacino. So, Lori, you know, what started maybe a week and a half ago as the vaunted broadening out and the healthy rotation and whatever other cliché has gotten a little bit more jumpy. What's the message you're pulling out from this action? So I think there's so many things going on at once, and I think that's what's really hard about dissecting this week. I think on the one hand, you know, we were looking at stretched sentiment levels, right, on a number of different indicators. Markets were starting to fill full in terms of valuations, this big cap growth part of the market in particular. And so

we've had a lot of nervousness under the surface about that. On the other hand, you've had this broadening out and, you know, I looked at some of the Russell moves earlier this week. They were just so sharp and so severe. I mean, it feels like we almost did, you know, in a couple of days what it took us two months to do last time before. And I think just whenever things, you know, move that quickly, even in Russell land, right, where we're used to these big moves, it unsettles people. And it's not surprising to me as we're ending the week to see that retrench just a little bit. You know, you hear a lot of folks looking at the unusual degree of these moves. And you can kind of back test and say, what does it usually tell us and where does it go from here?

So when you have the general backdrop of it's a bull market, we're up double digits in the first half. Usually that continues higher at some point through the rest of the year. Right. That's your overarching piece. And then, oh, when you have this much positive breath or this kind of momentum surge, when the Russell has this kind of a tremendous move relative to the rest of the market, it tends to be important. In other words, it's not just a blip. So do you take those on face value or is there something about this current setup that's different? I think you have to go and just really look at the whole picture. You know, last week, there were all these people running around saying, well, and I forget all the exact stats,

but, you know, the Russell's up X amount, the S&P is down. That's not happened since X date. What does that mean? And I actually just went back and back tested it. And over the next six months, Russell only outperforms S&P 35% of the time. Now, I'm not telling you it's not going to do that here. We've been neutral on the space and looking for an inflection. But the reality is you've had plenty of those big, jumpy moves and these weird divergences in down cycles in small cap and up cycles or outperformance cycles in small cap. So you really have to step back. And I think what's so hard about this moment is the positioning has been really, really in favor of a small cap reversion. The valuation,

maybe a little less so. Cheap, not as cheap as we were even last Halloween, but certainly supportive. You're talking about small caps? Small caps, yeah. And if you look at like the Russell PE was around 14 and a half times a week and a half ago, right? That's a little below average of 15, too. So you had that valuation room. And then we got this big, enthusiastic, you know, vote of cuts, you know, from the CPI data. And so you had people just moving in a hurry. You know, one question I have is, have we overdone the Fed optimism once again? You know, my rate strategist was telling me he's getting questions about, you know, 50 basis points. And we've seen one big house. I'm not going to say who make a July call. And that's not really the preponderance, you know, of the calls out there.

But we have done that so many times. So I think you want to proceed with caution here. There are a lot of good reasons not to be bearish here. But if you're trying to make that short term trade, it's hard for me to sit here and tell you we're definitely out of the woods. Yeah, I mean, you mentioned at the start there's so many things going on. So among those things, you mentioned, you know, huge surge in confidence about a soft landing. The Fed's going to nail this. We're going to get a cut in the next couple of months. And then you layer on top of it the perceived certainty about the election.

And not only that, but then what it's going to mean for different parts of the market. And I think that's been a fascinating conversation this week. You know, I've been a little bit quieter on this issue because to me, this has felt a little bit like the regional banking crisis a year ago. And what I mean by that, not that I think that it's any big, nasty thing, but I do think that sometimes you just got to let events unfold and not try to guess every twist and turn. Oh, yeah. You had people rushing from that Silicon Valley bank thing saying Fed's going to cut now. Right. And it's going to be another crisis, whatever. Right. It turned out to be a very well-managed crisis. And, you know, there were a lot of things that kicked in. And if you look at where we are, you know, I think at the

beginning of the week, there was a lot of questions on small cap. Is this about the Fed? Is this about the election? I'm actually pretty sure that one was mostly about the Fed and CPI based on my conversations. But I think it was a legitimate thing to ask about. At the same time, you saw financials and energy really making some big moves. It was all based on historical playbook analysis of 2016. As we got deeper into the week, some conversations with people saying, is it really going to repeat this time? And I think there is some skepticism out there. Yeah, and it's certainly kind of a different setup, just the economy, where it's at and everything. How does earnings filter into all this? You started to see, I guess, which we've become familiar with, a little bit of a sell the news reflex.

But in terms of what earnings have to prove. So I think earnings have to provide you the basis for further rotation. And what I mean by that is if you look back to last November and December, we had cheap valuations in small cap. We had under-owned positioning, and we popped. And we also started to see earnings momentum improve relative to small. And what I mean by that, you had pretty similar rates of upward revision in both the S&P and Russell. Contrast that with most of 23, it was all about the big caps pulling their earnings estimates up, and things were lousy and small. What we're starting to see right now, I'm actually pretty excited about. You are seeing that small cap earnings revisions are catching up to large cap.

Unfortunately, this is kind of happening at a time when there's kind of some softness generally on that stat. But we are sort of seeing that earnings case starting to be made. But we really have to make sure it's going to come through because if you go back to January, we basically saw valuation stopped looking cheap, the positioning stopped looking under-owned, and the earnings didn't come through. And oh, by the way, people were too optimistic on the Fed. I don't have an answer on that Fed question right now, but we're going to get an answer on that earnings question in the next couple of weeks. Yeah, so it ended up being kind of a fleeting window of time of outperformance. And aside from the small versus mega, which is obviously kind of the opposite ends of this seesaw,

what about large outside of mega cap tech? In other words, you mentioned financials starting to participate more. And are we just going to have a little bit more of an inclusive earning story there? Is that going to help us or where do we stand? I think, you know, the financials were sort of perplexing coming into this reporting season. They weren't that cheap. They were basically back to average on our valuation model. So we've been, you know, sort of watching that one, you know, stock by stock. I think the reality is that even if you're not necessarily super cheap there, you don't have

the same kind of valuation problems. And, you know, my favorite stat right now on valuation is if you take the top 10 market cap names in the S&P, your median unweighted PE or median unweighted 4P hit around 30 times. That is the post-COVID high. It really cannot reach that regularly or sustainably. And the rest of the markets trade around 16 times. It almost feels a little silly to me sometimes to talk about sectors when you've got all that valuation opportunity just outside of that top 10 cohort. You do, though, hear that 16 times the median for the overall index isn't particularly cheap. No, no, it's actually a little bit above average. Yeah, right, right.

And it's just, you know, it looks to me like you've had this massive move off the 2022 lows in that big cap cohort. This kind of looks, if you look at the charts, it's like a classic kind of catch-up trade. Yeah. And I think the catalyst for that catch-up trade, right, really have to be from earnings. And so we go back to what's happening in the economy, what's happening in earnings. The rest of the market outside of the MAG-7 had negative 5% earnings growth in that last year. It's expected to ramp up, but we haven't seen too much change in those aggregated estimates and percentage terms really since the start of the year. I'm having a hard time understanding where those upward revisions are going to come from

when GDP is slowing down. So that's a question I really want answered in the next few weeks. It's tricky. We'll see if we need a little more downside action to flush out that positioning and reset things in the next couple of months. No, I think that's fair. All right, Lori, great to talk to you. Thank you. Thanks. All right, we're just getting started. Coming up, leading the charge lower. American Express shares weighing on the Dow after second quarter earnings. But we have a top analyst standing by who just raised his price target. He'll make his case for more upside next. We're live from the New York Stock Exchange. You're watching Closing Bell on CNBC. American Express shares under pressure after reporting earnings. Our Kate

Rooney joins us now with the details behind that move. Hi, Kate. Hey, Mike. Yeah, so Amex has really been an outperformer this year compared to competitors like Visa and MasterCard, but the revenue miss during the quarter is weighing on shares today. There was also a mild slowdown in spending growth. Build business, which is pretty much a measure of spending on cards, was up 6% versus 7% in the first quarter, but Amex did raise its full-year profit outlook. I spoke to the CFO, Christophe Lekayak. He told me, bottom line here, high-end consumers looking really good. They're looking strong, and they're spending, especially on travel. Amex is also boosting marketing by about 15%.

The focus here is those younger cardholders. The CFO told me 75% of new cardholders are either Gen Z or millennials. They like the cachet associated, he said, with the platinum and gold cards for Amex. And, quote, they use their cards for everything. That's why they're focused on that group. About 25 percent higher spending on cards if you compare it to older generations. If you look at dining, it's almost 2x. And then one way they are targeting these young people is with partnerships.

So singer Olivia Rodrigo is one example. They're also spending more on F1. And they're evolving the brand, he says. To resonate more with those cohorts, he told me young people are more comfortable paying that annual subscription. They're used to paying fees on things like Spotify and Netflix and, quote, paying a fee for a card is much more natural for them. Mike. All right. Well, it all comes back to, I guess, the younger generations are not as different as they were portrayed for many years, right, than their ancestors. Yeah, exactly. It's full circle. If that continues to play out. Thanks, Kate. Joining me now to discuss is Stephen Bigger of Argus Research. He raised his price target on American Express post earnings to $270 a share.

That was from $246. So, Stephen, talk about, first of all, I think why you think the stock might be trading lower. Is it about the marketing spend or just a little profit-taking? And what did you like in the results? So, yeah. Hi, Mike. I think it was the real head of steam that the stock had coming in. As Kate mentioned, real outperformance there of 30% year-to-date, about double the S&P 500. So I think that's part of it, maybe a little bit of, you know, coming off the table here. But broadly, I'd say this is a relatively simple story of execution and just favorable backdrop of consumer spending. As Kate mentioned, build business did decelerate sequentially from 7% to 6%. But, look, it's bounced between 6% and 7% the last four

consecutive quarters. So the underlying trends really have not changed there. And just looking at the customer base, which, as I'm sure you know, is far more affluent than the national average, they tend to have higher incomes, better credit scores, and of course have been more insulated from the economic stresses, any kind of impact from inflation, higher interest rates, et cetera. So I think spending here continues. And, you know, then add to that rising stock market values and home price appreciation, greater interest income from bond portfolios for this cohort. And I think the spending tailwinds are in place. I guess the question on the marketing spend is whether it's just become so sort of rewards intensive and you have to kind of invest a little bit more in that younger

customer base at this point and maybe, I guess, muting margins a little bit in the short term. Well, they do indeed spend a lot on marketing, but the good news is they're very effective with it so this year they're looking at spending six billion on marketing that would be up fifteen percent from last year and look that that's a rarefied error even for for American Express they've never spent six billion and marketing so you know there's a real effort here to bring in more millennial and Gen G Gen Z customers that's where the spending growth has been. You know, I think that's a demographic where spending grew and built business up 13%

in the quarter versus the 6% we mentioned for the customer base at large. So I think that also is, you know, that sets them up well. And the higher marketing spend, they say it's not going to impact their growth this year. It's not taking away from earnings. And it would actually add, I think, to next year's all else equal. It's going to give them a boost in spending,

build business for next year. Now, your price target of $2.70 is 20 times current year earnings. It seems a little bit on the richer end of where American Express has traded in recent years. So I'd say two things. I mean, a 20 multiple on a company that's growing consistently in the mid-teens, they grow revenues at 10 percent and earnings in the mid-teens. So I don't think 20 is that out of line, especially when you consider the consistency of the growth that they've had relative to the rest of the broader market. Again, the customer base that's fairly insulated from economic downturns. And it might be on the high side historically. But again, margins, when margins are this high and you've got the growth rate where it is, I think it's justifiable. And in terms of a Fed rate cut, how does that sensitivity work through Amex,

whether it's on net interest side or maybe what your expectations would be on the spending side? Yeah. Well, interestingly, American Express has historically been liability sensitive rather than most banks, which are asset sensitive. So they benefit from lower rates on the balance sheet, number one. And of course, lower rates should all else equal result in some kind of push more broadly into consumer spending. So I think that's, you know, most of what we've seen this year, I think, is that higher

interest rates have kind of worn out their welcome for the American consumer. And to the extent we'll get a little bit of relief there, I think that also adds to the consumer spending story. Steven Becker, I appreciate it, making the case for Amex here. Thank you very much. Thank you. All right, shares of Starbucks popping. Leslie Picker joins us now with more on what's behind that. Hey, Leslie. Hi, Mike. Yeah, those shares are gaining on news from The Wall Street Journal that Elliott has taken a, quote, sizable stake in Starbucks. They cite people familiar with the matter there. They say that Elliott has been engaging with the company behind the scenes for several weeks in

recent weeks, and the situation is fluid, according to those people. And it's possible that they will reach an agreement privately soon. So this is interesting, Mike, because you look at Elliott. It's one of the most active activists out there. They've been engaging more recently in consumer-oriented companies. Take, for example, what's going on with Southwest Airlines and Elliott, as well as Etsy previously that had a little bit more of a tech bend to it. And of course, Southwest is an airline. But the Starbucks situation is really interesting. The fact that they are kind of negotiating behind the scenes would suggest to me that they may not be pushing

for some kind of a short-term sale or a short-term M&A transaction, which seems pretty unlikely anyway, given the current M&A environment and the size of Starbucks. However, you look at what's happened kind of in public purview between the founder, Howard Schultz, as well as the CEO and some disagreement on how to run the company. It'll be interesting. And I'm continuing to report and make calls. I got an official no comment from Elliott and CNBC got a no comment from Starbucks as well. But, you know, what exactly they're pushing for, I think, is going to be really critical here as we think about just the next phase of Starbucks and Elliott's role. Yeah, it is interesting considering it's been kind of an execution story in terms of the stumbles recently.

And who knows? You've even heard talk that maybe they should do more franchising and, you know, find another way of structuring the business. So I guess we'll see what they might might be pushing for it. Leslie, thank you. All right. Up next, strengthening support for stocks. Ned Davis Research's Ed Clissold is back and he's flagging a bullish backdrop for the rally in the months ahead. The catalyst he's watching and what areas could leap from here when Closing Bell returns. Welcome back. Small caps again lower today but shrugging off the worst of the broad market pain. The Russell 2000 well outperforming the S&P 500 and Nasdaq this week. As for whether the rotation can revive its momentum let's bring in Ned Davis research's chief U.S. strategist Ed Klisold. Ed wondering what your work is suggesting to you about whether this rotational move this huge rush higher in smaller stocks and the broad list of stocks has good meaning on a forward-looking basis. Yeah. So for the broad market, it does have a good implication because what you want to see are most stocks rallying together.

What you don't want to see is a very narrow market where just a few stocks are rallying, everything else isn't. And we kind of got into that situation in the second quarter where the mega capital stocks were kind of the only thing going up. And so what this rotation has done is created a percentage of stocks above their 50-day moving averages, got above 70% earlier this week. That's a positive sign. And then we had another thing. It's looking at the five-day

advancing stocks, all those stocks went up in a day for five days in a row versus all the stocks that declined for five days in a row. And that got to a really high ratio above three times. So when you get something that strong, it usually means next few months are going to be positive for the market. So this kind of rotation for more boats rising with the tide tends to be bullish for the market. And then put that into the context, I guess, of the general cyclical outlook, because it's all happening as we, I guess, are gaining some more certainty about, you know, soft landing, Fed rate cuts, perhaps the election. How does that filter through to your view? Yeah, these things don't happen in a vacuum. They're happening for a reason. And it's the macro fundamental backdrop where a lot of people were looking for the Fed to cut rates at some

point this year. We got some clarity of the CPI report and Powell's comments that September looks like the likely first cut date. And so now these small company stocks, a lot of whom haven't been profitable lately, so they need to borrow money to keep going. The lower rate environment means a lot more for them. And what you're seeing too is that earnings growth for small caps starting to look up. And then we have the political uncertainty

of who's going to be in the White House. But the market has gone up under Democrats and Republicans. The market likes to know who who's going to be in the White House, but the market has gone up under Democrats and Republicans. The market likes to know who it's going to be and whether or not you agree with it or not, knowing that Trump's lead is widening the polls tends to reduce some of that political uncertainty as well. Yeah, I guess who knows if that'll last for the next couple of months, but that certainly has been behind some of what's happened in the markets,

no doubt about it. And then in terms of whether we're in a good spot in terms of how people are positioned coming into this tough seasonal period of the year and whether you think that there is a higher risk of some kind of give back in the near term. Yeah, so you look at a couple of different ways. We have some sentiment indicators that we watch closely and things probably a lot of listeners follow. The VIX index of volatility put call ratios, they're showing a lot of optimism. And so to think that their market couldn't have a bit of a pullback for a variety of reasons, interest rates pop back up, maybe some earnings disappointment, you know, could allow for the market to pull back here. But as long as the damage isn't too great in that

trajectory of a few rate cuts coming up, decent year-over-year earnings growth, and the political uncertainty remaining far in the background, it means the market should be OK for the second half of the year. In terms of that, you know, the massive advantage of advances versus declines and all these kind of breath thrust things that happen in the small cap rush higher, it seems a little bit out of sync with perhaps arguably where we are in the economic cycle. Isn't that the kind of thing that you would typically see, you know, kind of coming off a major economic low or some kind of, you know, the crescendo of a big market sell-off? Yeah, that's when they happen most often. I would say the last decade or so, we've gotten a few more of these after smaller sell-offs. But here's a

nugget that really brings it home. You know, last week after the CPI report, it was the fourth best day ever for the small cap Russell 2000 index versus the large cap Russell 1000. The other three were the day of the Black Monday 1987 crash, October 10, 2008, when Lehman Brothers went belly up. And then we also had a couple of days before the pandemic low in 2020. I mean, those were major market events. And this happened off of a CPI report. So it is a little bit different from when these things normally happen. But, you know, the way we do things at NDR is we let the data speak for itself. And, you know, broadening the market on balance is a positive thing. Yeah. And I guess in some ways it's a measure of just how extreme the underperformance was recently in a decent economy leading up to that huge bounce.

So who knows how we how we account for it. Ed, always good to talk to you. Thanks so much. Thanks for having me. Coming up, we're tracking the biggest movers as we head into the close. Kate Rooney is back with those. Hey, Kate. Hey, Mike. Yeah, so we're going to bring you the details around one major utility company that's up double digits and then some clean energy names heading in the other direction, collapsing in today's session. More on all of that after the break. 16 minutes till the closing bell. S&P 500 down three quarters of a percent around 5500. Let's

get back to Kate Rooney for a look at the key stocks to watch. Kate. Hey, Mike, let's talk about Hawaiian electric shares first surging over 35 percent today. The utility company among the firms tentatively agreeing to buy over four to pay rather over four billion dollars to settle hundreds of lawsuits over last year's Maui wildfires. This is according to a Bloomberg report. And then SunPower shares collapsing today, really going the other direction. As the energy company announced Thursday, it plans to suspend any new solar installations or shipments as of September 17th.

Guggenheim analysts telling clients today that the move effectively marks the end of SunPower as an operating business. Shares are trading under a dollar at this point. And Plug Power shares sinking today after the green energy company announced its plans to sell $200 million of stock late on Thursday. Shares are down over 13% on pace for its fourth straight losing year. Mike, back to you. Yeah, well, that's been going on about 20-something years with Plug Power,

raising more money, trying to make it work. Kate, thank you. Still ahead, coverage concerns. Insurance stocks sliding today with names like AIG, WR Berkeley, and Dow Component Travelers posting notable declines. Our Contessa Brewer explains why. Closing bell is back after this. Up next, bank bifurcation, a post-earnings pop from Western Alliance, and a drop from Comerica, capping off a big week for regionals. We'll dig into the details behind those moves and much more when we take you inside the Market Zone.

We are now in the closing bell market zone. Contessa Brewer on what's behind the sell-off in insurance stocks, plus Leslie Picker on big moves in the regional banking space, and Wells Fargo's Scott Wren breaks down the crucial final moments of the trading session. So, Contessa, talk to us about what's behind these insurance moves. Well, you know, travelers had a noteworthy earnings beat this morning, Mike, in spite of a record-breaking second quarter for thunderstorms and catastrophe losses of $1.5 billion. It wasn't so much that the climate risk spooked investors, and you can see the stock is down almost 8%.

It's contagion concerns because a much smaller company, Selective Insurance Group, posted losses in its earnings yesterday in part because of an unfavorable prior year casualty reserve development. It turns out it didn't set aside enough money to play games in casualty. And that stock dropped about 18 percent now. Let's show Selective. Other companies with exposure to those business lines like Travelers, W.R. Berkeley, Hartford. They all got lumped into the same boat. And then, of course, there's concerns over the crowd strike fallout that will likely hit cyber insurers. I mean, AIG is down about four or five percent today and the impact still to be seen here. So we'll keep an eye on our insurance stocks. But it looks like there's more story to tell here, Mike. Yeah, for sure. And certainly one of the stronger groups within financials or had been up until recently, Contessa. Thank you very much. Leslie, regional banks, it seems like

a little bit of a give and take here. Yeah, that's right, Mike. Regional bank fundamentals have actually been better than expected during this earnings season. As made evident by today's moves in Western Alliance, those shares are currently about 7.8% higher after the Phoenix-based bank raised guidance, grew deposits, and showed a significant beat on net interest income, the profitability metric for loanmaking. Credit quality wasn't much of a concern with net charge-offs and non-performing loans. Little changed on a quarter-over-quarter basis. And it's this type of print that's helping push the KRE higher today. Over the last week, but not all regional bank stories were positive today. Comerica reported somewhat mixed results. That one is down about

11 percent, largely spurred by the likely ending of a key partnership. Comerica said today that it received preliminary notification from Direct Express, which distributes federal benefits via Comerica issued debit cards. Analysts point out that this relationship generated average deposit balances of three point three billion into Q. And Mike will get additional regional reports next week, including Truist and Zions on Monday. Yeah, absolutely. So I guess since that's kind of a one off, still a decent economic message coming in general out of the action in the regional bank stocks. Thanks very much. Another busy week coming up. All right, Scott, let's talk about where you would, I guess, reallocate any portfolio funds you might have right here? Because even though it looks like just an orderly 3% pullback in the S&P,

there's so much movement below the surface. I wonder if it's surfaced any opportunities for you. Well, I think, Mike, it's a little early for that. I mean, in our opinion, this rotation that we've seen into small caps, that's not something that's going to last. We think we're still in late cycle, not early cycle, where, you know, small caps and high-yield bonds and that tend to perform early in a cycle. So we don't think we're there yet. We have been hoping for a pullback because we do have a little bit of cash. We think tech and communication services are a little overvalued

here. And I don't think it's really a bold call. You know, if you're looking for a 10 percent pullback, you know, after the kind of run that we've had since the October lows, I think that's very doable. And so, you know, three percent, that doesn't get us interested yet. But I think we have some potential over the next couple of months for a little more downside. I mean, what do you think would spark that? Not that you always need some specific cause, but it seems as if the market is, you know, getting pretty comfortable with the idea of, you know, soft economic landing, Fed's going to cut rates, maybe we get some friendly policy measures out there, but who knows? I guess, is there something in particular you're expecting to disturb the market soon? Well, you know, I think at this point of the cycle, it comes down to what inflation is going to do and what the Federal Reserve is going to do about

it. And I think right now, whether you look at what the market expects in 2025 or what the Fed expects in 2025. I mean, they're expecting a lot of rate cuts between now and the end of 2025. I think we've got two penciled in this year. I would still argue that if we're wrong about that, it would be fewer rate cuts, not more. And of course, we're running out of meetings. But I think the thing that would spark some sort of sell-off

is inflation is stickier. That's one thing, which would cause the Fed to leave rates where they are, not cut much at all. And then I think also this earnings season has the possibility of not coming in with nearly as high a beat rate as we've seen in the last three, four, five quarters, which that's been 400 basis points better than consensus pretty consistently. So if we come in in line or just less of a beat, I think the market's going to get a little bit concerned about the magnitude of the slowdown and really what that's going to do to earnings. Because as we look down the road 12 months or so,

it looks to us like the consensus is a little optimistic on earnings. So I think those are two things, inflation, interest rates, and then earnings that could take us down a little bit. You continue to kind of lean toward a quality bias, but you also said that tech and communication services look expensive. That's often, you know, where a lot of the quality names are. Where would you focus if you still want to take advantage, really, of this rotation out of quality into lower quality? Yeah, and on this run up, and you're right, Mike.

I mean, you know, tech and communication services have plenty of quality. But, you know, tech's about 32% of the total cap of the S&P 500 now. So if you're neutral there, I mean, you're carrying a pretty good load. But we have interest in industrials. We have interest in health care, which has been a little difficult. We have the most energy, are the most interest in energy. We think there's still a shortage there. And even if the economy slows further, like we

think, you know, we want to get into that. So materials, we still like materials. So I think those are some of the things that we think are undervalued relative to what the outlook is over the course of the next 18 months or so. All right, Scott, I appreciate the time today. Have a great weekend. Thank you. We are got 30 seconds until the close. We are headed for a further pullback on this Friday. The S&P 500 down about 0.7%, right above that 5,500 mark. On pace for about a 2% drop for the week, as well as about a 3% pullback from its all-time highs. We do have another day of negative breaths with the Russell 2000 outperforming,

but also down two-thirds of what we said. That's going to be what the closing bell will send into overtime with John and Morgan.